Lloyds TSB has moved from seeking a merger with a major European bank to look for outright acquisitions as it faces the likely block today of its attempt to buy Abbey National.

Lloyds has relaxed its requirement for a merger of equals in any European deal after three years of failed talks, and is now searching for takeover targets too.

Other banks are also likely to intensify their search for European deals following today's expected block by the British government of Lloyds' £18.2 billion sterling bid for Abbey.

A block would have far-reaching implications by making further consolidation by larger banks impossible, and ruling out creation of a national champion in Britain.

But mopping-up operations are expected to see the takeover of smaller banks. Abbey, which rejected Lloyds' overtures, is likely to explore options for deals, but will have de facto takeover protection, leaving it free to remain independent indefinitely.

The Competition Commission's investigation, led by Ms Denise Kingsmill, is thought to have concluded the Lloyds-Abbey deal should be rejected. Ms Kingsmill was concerned the new bank would dominate current accounts, the core product.

Officials at the British Department of Trade and Industry said it would be "astonishing" if the commission's recommendation was not implemented in full. But they refused to comment on the final decision, and Ms Patricia Hewitt, trade and industry secretary, has the power to overrule the commission, approving a bid or imposing conditions.

Shareholders said a block on further consolidation could leave the UK bank sector to stagnate, while national champions are created abroad. Lloyds and Barclays are seeking European deals, but have been unsuccessful.